I have started doing option trading and as per my knowledge so far price of option rise or fall depends upon the delta (I am considering only delta for this example for brevity).
For my question I have to give an example - Lets say the stock price is $100 and its 110 CE premium is $1 with the delta of +.5. Which means that every $1 increase in the stock price will rise the option lot price by $.50. [To keep the example simple lets consider that delta is constant throughout the day even when in price is now closer to $110]
Now, assume the stock price is $105 so my 110 CE option price should be $3.5. But the price of option is just $2 because someone sold his lot at lower price.
Ex: at 1 PM option price reached $3.5 because stock price is $105 ( Option chain : ask $2 Bid $4) . But someone sold his lot at the highest ask rate (i.e. $2). So the price of option came down to $2, which ideally should be $3.5.
So, my question is that does option price really relates to stock price/delta? or it is dependent upon buyers and sellers of option?
what if the price of stock reach to $106, would option price be now $2.5 or $4? Because from $100 to $106 there is a move of $6 and ideally option lot price should be $4 ($1 + $3).